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Business wins, consumers lose?

The new White House policy on electronic commerce says Net transactions should be governed by contract law, but consumer groups fear the little guy will suffer.

If a woman in Germany downloads software from a Web server in California and pays for it with a credit card issued by a Swiss bank, whose laws should apply?

None of the above, according to the Clinton administration. In its landmark electronic commerce policy paper released today, the White House said contracts, rather than laws, should dictate the legal framework for Internet transactions.

"In general, parties should be able to do business with each other on the Internet under whatever terms and conditions they agree upon," the paper stated. "To encourage electronic commerce, the U.S. government should support the development of both a domestic and global uniform commercial legal framework...Fully informed buyers and sellers could voluntarily agree to form a contract subject to this uniform legal framework."

But while most businesses like the idea of using contract law to govern cyberspace transactions, consumer groups fear that contracts put Net shoppers at the mercy of powerful companies.

"[Contract law] is predicated on the idea that the two parties in an agreement have equivalent bargaining power," said Gail Hillebrand, senior counsel with the Consumer Union. "That's simply not the case with mass-market purchasers who enter into take-it-or-leave-it shrink-wrap licensing agreements."

The Consumer Union and Ralph Nader's Consumer Technology Project have been fighting, mostly without success, to include consumer protections in proposed changes to the federal Uniform Commercial Code (UCC). The law would make shrink-wrap and "click-wrap" licenses--those ubiquitous "I agree" buttons scattered all over the Web and their never-read legalese--fully binding. Most courts don't recognize shrink-wrap licenses as valid today, and many consumer protection laws require signatures to make a consumer contract binding.

The United Nations Commission on International Trade Law has also created a model for international contract law, according to the paper, but that too is aimed at business-to-business transactions.

"I don't want to say that the UCC can't work for consumers," Hillebrand said. "The problem is that the people who are drafting the UCC, [the National Conference of Commissioners on Uniform State Law and the American Law Association] don't believe it is their job to be regulatory, that is to day you can do X and you can't do Y.

"But if you can't control what goes into a one-sided contract, it won't work with the mass market, where consumers have no bargaining power," she said.

Hillebrand also said the UCC process, though open, isn't the most easily accessible to consumer groups or individuals since meetings are held all over the country for at least a year. "We're up against an industry that can field 50 lawyers at every meeting."

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